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Originally, most states that legalized LLCs (Limited Liability Companies), focused on the specific projects or purposes of the organization. As a legal hybrid of a corporation and a partnership, many jurisdictions required an LLC termination date, which described when the company would dissolve. Most states now permit LLCs to become long-term or perpetual organizations, like corporations. However, should people form an LLC for a specific project, they can still state a termination date, after which the company will cease to exist.

State Laws

Although a federal creation, LLCs are governed by individual state laws. States, such as Arizona, create laws and regulations specifying the rights and limitations of LLCs. The federal government, specifically, the IRS, follows state law in LLC taxation matters. In most cases, LLCs operate like Subchapter S corporations, although these can last forever, with the organization free from federal taxation, with all profits distributed to LLC members (owners), to be included in their personal income.

Arizona Laws

In Arizona, termination and dissolution occurs upon the occurrence of events matching certain legally specified conditions or the termination date specified in the operating agreement. Further, the LLC can terminate when members vote to dissolve the organization. However, the LLC operating agreement, filed with Arizona before the birth of the company, can stipulate other conditions for or prohibitions of LLC termination. Operating agreement stipulations, as long as they comply with state law, typically override state termination provisions.

Project-Related LLC Termination

Although many states, including Arizona, permit perpetual existence of LLCs, organizing members (owners) can state a termination date. For example, if you were associating with partners in a land development project, members might want their organization to exist only until project completion. Since you have no plans on giving these limited partners perpetual ownership in an ongoing business, setting an LLC termination date is appropriate. Should the project extend beyond expected completion dates, members can set a new termination date.

Ownership Transfers and Termination Dates

Transferring ownership shares in an LLC is more tedious and complex than selling shares in a corporation. An LLC with a stipulated termination date further complicates transfers of ownership. The legal operating agreement rules, backed up by prevailing state law. If your operating agreement permits ownership transfers, prospective investors must be advised that the LLC has a termination date, after which the company will be dissolved. When reaching the termination date, the LLC is legally dissolved, mandating distribution of profits and assets to legal owners at termination date.

Perpetual Existence Limitations

Many states, unwilling to give perpetual status to LLCs, set long-term limits for LLCs, often up to 30 years. Some state laws require the termination of the LLC upon the death or withdrawal of even one member (owner). Other states, like Arizona, permit perpetuity, unless the LLC has filed Articles of Termination that provide for total distribution of assets and profits to its members as of a specified date.